00:00:00
welcome everybody to episode 101 deutsax is on vacation sitting in Brad gershner
00:00:06
from altimeter group welcome back to the Pod Brad how you doing it's good to be back good to be back I
00:00:12
mean first you first you guys uh you know tilted Friedberg and now a little bit on uh sax is getting attacked on
00:00:18
Twitter and so you roll me back in when yeah when you got a little problem whenever the brigad dunes come out Brad gerstner comes I think sax will be okay
00:00:26
but shout out to sacks you know who probably hates the term brigadunes the nitwits that are in the brigadunes
00:00:33
Cricket Tunes oh the Brigadoon it's all gonna end at some point because I think the Brigadoon new ownership at Twitter
00:00:40
is Gonna Change like the whole spam the Rogers and Hammerstein musical right yeah yeah yeah but now I think brigad
00:00:48
Dunes could stick I don't I've never heard anybody use that for the Braves rolling calling the Twitter mob the brigad dunes is a good new thing I like
00:00:55
yeah it's pejorative it's funny it Seasons everything a little bit tones it down I like it it feels goofy it
00:01:01
completely disempowers them they really want to be taken seriously but they're just a Brigadoon
00:01:07
I mean to be a pretty dude though you have to have four or more accounts and you have to reply to each of those
00:01:13
accounts as if it's another conversation yeah when you retweet something as a social justice Warrior as an example you're trying to join the Brigadoon ah got it it's just a different Brigadoon
00:01:25
it's a brigade Jacob are you sometimes a Brigadoon right you're part of brigad Dunes Jacob no I'm not part of anybody
00:01:39
[Laughter] nice for my brother [Music] [Music] well anyway uh Kanye West can't leave an amazing career alone and he is going to buy
00:02:11
parlor which apparently Candace Owen's husband George farmer had created so he's gonna buy his own social network if
00:02:17
you don't remember parlor is like a really shitty version of Twitter that never seems to have worked or been
00:02:24
stable it crashed the first 10 times I used it miraculously this steaming pile of
00:02:30
garbage had raised 56 million in funding and Kanye is on a social media media tour
00:02:38
saying horrific anti-semitic stuff he seems to be having a mental breakdown again uh there's a big discussion now I guess should people be platforming them to the point uh that
00:02:51
he's doing three four five hour interviews with people and it does seem like it's acute mental illness slash
00:02:58
breakdown I don't want to like diagnose anybody from afar here and I'm not qualified you just did well I mean he
00:03:05
has been in public about his struggles with mental illness it's not a huge leap for any of us that have had family
00:03:10
members have manic episodes I mean this is clearly America it's pretty much right
00:03:16
out of the textbook so my question for you guys is what you have somebody with great wealth great creativity he's obviously a savant in so many different categories
00:03:28
with a huge social media following plus money plus Fame and then you add social media to the mix
00:03:34
which is an accelerant and then all of these you know Tucker Carlson and every other publication every podcast using
00:03:41
this moment I think in a way to kind of I don't know get ratings off of this train wreck I find it abhorrent to interview somebody when they're in a manic episode like this I'll be totally honest I wouldn't do it what is your
00:03:53
take on this I have a family member a blood relative that is in severe mental health crisis
00:04:04
if the emails and the text messages that this person sent were public you you I read these things and they've
00:04:17
severely severely impacted me to the point now where I have like a rule that when they're in a manic episode I just kind of harvest them and archive them just in case something bad
00:04:28
happens but I can't even take the effort to read it and because it takes such a toll and then I feel really guilty because I think maybe there's a something in there where I could be
00:04:40
missing something so this is what when you're in the middle of a of of of a severe episode this is what the family and the loved ones of that person is also dealing with so I have I have no
00:04:51
idea what's happening with Kanye but what I would tell you is when you're in a manic episode the more the the thing that you need is for the
00:04:58
people around you to try to step in to help you and it's really freaking hard and I can tell you that in I've seen
00:05:04
this person in my family say and say things and do things that are just so beyond the pale yeah and it's part of
00:05:11
when they're in that moment and the whole goal is to try to get them out get them back on their meds get them
00:05:17
rebalanced it's a really really complicated thing to deal with well look I mean the guy the guy's buying a social media platform I think it continues to support the
00:05:32
point that I've made a few times which is I don't think that anyone has a monopoly in social media networks we've
00:05:38
seen every couple of years uh competitors emerge people Proclaim Monopoly those monopolies get uh
00:05:46
destroyed by the next thing you know from Friendster to Myspace to Facebook to Instagram to Snapchat
00:05:53
to tick tock and I think that the the reality is the users of those platforms ultimately coalesce around a set of standards they want to see happen on that platform and those standards become
00:06:06
kind of the editorialized or produced model for how that platform should operate because that's what the users say they don't want anti-Semitism they
00:06:12
don't want what they would call kind of challenging an institution they don't want fake news whatever the the
00:06:18
classification is there's an editor or an editorial board that editorializes what is and isn't allowed to be set on
00:06:24
that platform and ultimately there is a fringe Voice or a voice that feels unheard or feels like it cannot speak on
00:06:30
that platform and what we're seeing now with I think Elon acquiring Twitter and Kanye
00:06:35
acquiring parlor um and generally a number of kind of emerging networks uh like uh what's it
00:06:41
called rumbler as an alternative to YouTube communication maybe what's it called
00:06:46
Rumble I think yeah I think it's it's a really clear supporting fact that there are going to
00:06:54
be Alternatives and that these what we thought were monopolies and what kind of became digital Town squares and almost
00:07:00
infrastructure are really just application layers they're editorialized and there are going to be competitors
00:07:05
and I think there are folks that want to have a voice that feel like they've been editorialized out of the existing networks like Kanye like Trump like Elon
00:07:14
to some degree and they're um you know those that have resources they're changing that and I think that speaks to
00:07:20
a really healthy competitive market so having folks like Kanye step in and try and create a new platform that has
00:07:26
alternative voices long term I believe in freedom of speech I believe that we should have alternative voices but I
00:07:32
also believe that consumers and customers should be able to choose what platform they want to be on based on the
00:07:37
editorialization that happens on those platforms and I do believe that the owners of those platforms should have their own rules because it creates a
00:07:43
different differentiated product Jason is that why you we're hoping to get comment on or this idea of the media
00:07:49
Feeding Frenzy feeding on Kanye's mental breakdown yeah I was talking about the media
00:07:54
frenzy that's the thing that I think is pretty abhorrent here in fact YouTube just pulled a bunch of the interviews he did recently because there's so much
00:08:00
anti-semitic stuff in it and you know when somebody's in a mental breakdown like this which I think it's pretty
00:08:06
clear he's in you know they do this behavior and of course it's hurting them it's to your
00:08:12
point you know I'm sure it's hurting his uh kids or or Ex-Wives or ex-wife and you know can I ask what's that can I ask who do you think is to decide that because he's done
00:08:25
interviews where he said I have episodes and those episodes actually provide me with creativity yeah yeah I think it's
00:08:31
up to the post the person who is the host of that show who has to make an editorial decision and so Tucker
00:08:37
Carlson's going for Ratings or if somebody else does it and they want the ratings because Kanye's a big name
00:08:42
that's you know I get it he's he's a great Gat right and if you are somebody who likes to interview people that's
00:08:47
like a lifetime get that could be the get that you know makes people learn about your podcast I just think it's
00:08:53
unethical to do that when somebody is suffering like that to then feature them and to platform them in order to get
00:08:59
your own ratings that's a personal decision let me ask you a different question though so I wouldn't do it would you hold him accountable for what
00:09:06
he said well this and this is the Nuance you know and I think we do have to think about that
00:09:13
because anti-Semitism uh exists in the world he's got a big fan base that means if
00:09:20
he's got people in his fan base who are also having a manic episode they could then be inspired by what he's saying to
00:09:26
do something horrific and cause real world harm and and this is where you know the accelerant of social media
00:09:33
I think is particularly dangerous you know in the old days if somebody said this stuff on a talk show maybe they
00:09:38
don't air it where they say it it's in the newspapers but when he could have a continuing dialogue across many podcasts
00:09:44
a week he's done like 10 podcasts in the last week he'll he'll go on air with anybody and then he has whatever tens of
00:09:49
millions of followers he's reaching hundreds of millions of people all you need is one person who's mentally ill to
00:09:55
then go do some horrible thing in the world that we've seen happen many times and that's what I'm concerned about
00:10:00
you have to understand your the it's the law of big numbers basically Tomorrow there's a large number of people yeah
00:10:05
just to give you a sense of it you know when this family member of mine um you know we've had we've had to have
00:10:12
interventions we've had police we've had um the government get involved in Canada we had had their driver's license taken
00:10:23
away then I mean it is an unbelievably complicated set of interventions and I am so thankful that she doesn't have
00:10:36
massive social media awareness because it would just be chaos and I would hate that you know because of their Association to me that this person
00:10:50
gets more attention than they should in a moment where what they really need is help
00:10:55
and I think that that it should be the governing principle in moments like this where if a bunch of your family members
00:11:00
or your health care providers or whatever can raise their hand and say hey hold on a second this is completely
00:11:06
off the rails you know Freeburg to your I don't think that editorial Freedom matters in that point
00:11:11
I think there's just a more Humane idea around get this person off the airwaves and
00:11:17
like allow themselves to add it get out of that Loop settle down yeah yeah and and typically what happens is that you know these folks at Lee again and just in my experience
00:11:28
will have titrated a medicine well and then when that titration fails their ability to regulate their emotions fail and this is the loop that they enter and
00:11:39
you know you really have to find a way of like taking all of these mechanisms off the table so that they can
00:11:45
re-regulate themselves and I think that as a society we have to sort of move towards that so that if you know family
00:11:52
members can call Twitter or Facebook or Instagram or whatever and say listen or the doctor you know here's the doctor's
00:12:00
note like you have to be able to shut this stuff down because you have to mute all of these other things so that this
00:12:06
person can then get back into a mode where they re-regulate that should be the priority yeah compassion for the
00:12:13
person yeah it's and it's not forgiving what they say but it is having maybe a little bit more
00:12:19
compassion in that moment to get them back to their to their children this one's a little easy to say hey Kanye's
00:12:25
having a mental breakdown because he's talked about mental illness in the past it's a lot harder to make these you know supposed determinations as a reporter or
00:12:33
a podcast host if someone says something crazy and then it's easy to raise your hand and say hey they're crazy cut it out or there's some
00:12:39
mental health issue going on here but Freeburg if he's not if he's not having a mental issue right now then he is a
00:12:45
horrible human being who is an anti-semite who is spreading just the most vitriolic horrible things you and
00:12:52
tropes you could ever imagine at a time when you know uh there's enough division in the country and somebody could get
00:12:58
hurt you know uh so either in either case his accounts have to get paused if he's going to say anti-semitic stuff on them that's that I mean there's really clear guidelines
00:13:10
across all these platforms on what's inappropriate and certainly I think folks will start to adhere to them I
00:13:15
guess if I had anything to contribute I mean I think Chima said this well about a mental health angle but what I
00:13:22
would say is I actually think that the social platforms have done a reasonably good job the fact that he's buying parlor I think is evidence of the fact that there actually is an editorial layer yeah
00:13:34
that's doing a reasonable job it's a tough decision ever there's always going to be a long
00:13:40
tail of podcasts somebody will you know somebody will go grift off of uh you know an episode or whatever but I think you know a few years ago we were talking about no editorial
00:13:51
standards and I think today you know across these platforms obviously there's attention there's a tension that's existed for a hundred years plus around free speech
00:14:02
on these platforms I get that tension but I think uh a little credit where credits do we're seeing we're not seeing
00:14:09
these memes spread like wildfire uh in part because the platforms with the most reach are doing their job snaps down 30 percent today you guys see this I think it's it's related in the
00:14:21
sense that everyone historically talked about social networks as being these uh you know the network effect where you
00:14:28
know multiple people get on and they link up with you with each other it's harder and harder to break the network and it gets bigger and more valuable and
00:14:33
can generate more Revenue clearly not happened over the years with Twitter to the degree that people
00:14:39
thought it should have and now clearly it's not happening with SNAP I think it also speaks to this idea of
00:14:44
fragmentation I don't know if you guys want to talk about snap but pretty significant decline from well here's the
00:14:50
here's the 60 they were 160 billion market cap and today they're trading at 12. they're down 91 from Peak to track
00:14:56
91 yeah here's the important thing to note which is that if you look at the Mau growth of snap it's actually been
00:15:04
extremely steady and they've had an incredible March forward and I think that they're roughly around 350 million
00:15:12
Nick I'll send you the dis right I'll send you the link yeah I think it's like the Dow you count is incredible it's
00:15:19
incredible so it's like yeah it's a service that is incrementally every day more relied upon than the day before and it's a service that's providing a set of features that is incrementally
00:15:30
more important to a larger and larger group of people so how do you then square that with its stock performance and in my opinion I'll just be really honest with you and I don't know Evan
00:15:42
Spiegel and I've never trafficked in Snapchat at all okay but it is the most glaring example of
00:15:51
corporate misgovernance that has ever happened on the internet and the reason is when you look at what
00:15:58
happened in the IPO it basically created a governance structure where the common shareholder
00:16:06
had all voting power taken away so a hundred percent effectively the de facto voting power stayed with the class that was held by the founders and so you you do not have a normal
00:16:19
check and balance and it was egregious other companies would have voting programs where it was
00:16:26
20 to 1 and you would sometimes say oh it only should be ten to one or it should be 50 to 1. this was like a hundred to zero and what you have now is no real
00:16:38
feedback loop because there is no person who can own enough equity with enough say to sit across the table from that CEO and say Here's what you're not seeing
00:16:51
and here's what you're getting wrong and I think you're always better off by having those kinds of people
00:16:58
be able to get a meeting with you in the first place and have a vested interest where you
00:17:03
take them seriously but how would you receive a meeting when you're sitting across the table
00:17:09
from somebody in the back of mine you're like wow this person has literally no say in what I do after this meeting ends
00:17:17
literally none you can't vote even to even it's different than alphabet and meta at ten to one because they I think they both have dual class right that yeah I think zero is in my opinion a deep
00:17:31
sign of disrespect I think you can I think you can agree you know that um there is a separation between you
00:17:42
know the voice of the common shareholder in these companies and and the direction of the companies but I think it obscures
00:17:47
what's going on chamoth I totally agree with you if you look at usage the number of customers walking into the store
00:17:54
um snaps gone from 265 to 360 million dau's Twitter 190 to 240 meta from 1.8 to 2 over the course of the last three years they're all growing more people are walking into the store and using the
00:18:08
service the story here is all about pricing how much is each of those users worth I mean apple is the apex predator of this entire Market we wouldn't be
00:18:20
having this conversation but for the fact that Apple's changes with idfa literally pickpocketed the industry two billion dollars this year under the
00:18:31
auspices of privacy and so if you look at these companies usage up pricing or arpu down okay recently Apple's come under a bunch of pressure
00:18:43
so now they're out with scad 4 which is their update to uh the the the ad policy
00:18:50
post idfa that allows you to Target advertisers or individuals with 10 000 attributes instead of a hundred attributes so we're gonna see some realignment I expect that the real
00:19:02
question is what happens to arpu next year but to me the story here is that the usage in the health of these core platforms is remarkably sticky yeah for
00:19:14
all the things we say about Instagram I mean Tick Tock has had explosive growth 30 growth each of the last three years
00:19:20
but even the incumbent platforms a really sticky usage this is about how they're monetizing those users and the real story is Apple yeah and if you for people who don't know idfa is the
00:19:31
identifier for advertisers some people refer to it as made mobile ID ad ID I'm sorry um and so what that does is it lets you track a user anonymously across
00:19:43
have you ever have you ever owned and have you ever owned any clicks to a sound have you ever owned Snapchat stock
00:19:49
no why not um certainly governance is a key component of it but the second thing is like do you have do you have any belief that
00:20:00
you could even get a meeting with the CEO and management where they would listen to you appropriately
00:20:06
we've certainly got meetings with management before so yes I believe we could whether or not that impacts you
00:20:13
know how they build product how they how they run the business you know the influence Etc but again I I think
00:20:20
that's not really the problem here but the point I would totally agree with you on Shima
00:20:26
we've had 10 years of where the cost of capital was Zero 10 years of hyper growth for these social networks right in each of the last five years
00:20:38
Facebook has hired more people in each of the last five years than they had 10 years after the company was founded
00:20:45
okay so as we've seen this growth begin to turn over I have seen the companies really slow to react to right-size their behavior that they
00:20:57
had over the course of the last decade to put themselves in a position to compete for the next decade so it's one thing just to throw your hands in the air and say well this is all Apple we
00:21:07
couldn't do anything about it but we we really haven't seen leadership in terms of cost control we really have
00:21:15
we all know these companies yeah of the of the major companies Brad snapped into a 20 riff that had 6 000 employees or so
00:21:21
and they cut 20 percent Facebook is the one that's perplexing because they seem to be massively oversap staffed as you
00:21:29
talked about and they have been massively um they've had a massive decline in their uh stock price and they are the
00:21:35
one who is affected most by what Apple did in terms of app tracking transparency is I think that there's a perception though I mean I'm still stuck on this issue I really think that stock
00:21:47
prices tend to ebb and flow based on sort of like friction or momentum and when there's momentum more and more
00:21:59
people can easily underwrite it and when there's friction fewer and fewer people can underwrite it and so I think that if
00:22:05
you are a CEO of a public company you have to think about how many headwinds do I have and how many Tailwinds do I
00:22:10
have all the time and some of them are in your control and some of them are not at least in the case of
00:22:17
meta as with Apple and Google they meta is forced to copy the best decisions of these bigger companies why because they were
00:22:28
one of those biggest now they had may have been the smallest of the biggest but it's going to be very hard for meta
00:22:35
eventually to not Converge on those same set of decisions and the most important one is what Brad just alluded to
00:22:42
which is that there was a point in 2016 and 2017 where you literally could not give away Apple stock
00:22:48
and the big turn of the dial and you know some say it was Carl Icahn who knows was this theoretically this famous
00:22:55
dinner that Carl Icahn had with Tim Cook where he laid out a plan and it's like listen you need to start managing costs
00:23:02
better managing Opex better return a ton of cash buy back the stock and you'll be a
00:23:09
darling and Tim Cook was rewarded and he's he's been rewarded with an incredibly performant company and so you
00:23:17
know Google is slowly inching towards that plan Microsoft is in that plan and so the only Big Four Horsemen that hasn't really gotten the script yet is meta but they will it's just we're just
00:23:28
debating when and so there's a perception that you know meta will copy what the rest of these big guys do but these other long tail
00:23:40
companies the headwinds are just greater and so when you you know don't have a company that can be broadly owned by intelligent thoughtful investors that's a headwind right when you give
00:23:52
nobody votes that's a headwind and so that's why you see a company that's continuing to grow impact not being able
00:24:01
to translate that into economics and if I were the board of that company that should be a wake-up call because
00:24:06
eventually that'll flow into the morale of the employees and the ability to retain and then the ability to invest in
00:24:12
the future and I think the simple answer is enough with all these you know gymnastics around control
00:24:19
you know if you looked at Elon the most incredible thing from day one was there's common stock
00:24:25
you know and his whole thing was like I'm just gonna do the best and you know what if I'm not the best I'm going to be
00:24:31
out he literally said vote me out vote me out he's never ever played these games so in this funny way control is a symbol of a lack of ability
00:24:41
to run the business masterful Mastery of a business you can translate that to being I'm just going
00:24:47
to have common stock um tracking back to the high voting class for Founders was that they would
00:24:58
be challenged by the investors in the market and you can see the things that Carl I can and others ask for they say
00:25:03
we want to see you cut Opex we want to see you pay dividends we want to see you buy back stock
00:25:09
and we want to see you grow and so the trade-off then in the mind of a Founder uh that that that started this business
00:25:16
and scaled it to billions in revenue is well that means I've got to make short-term decisions over long-term
00:25:21
decisions I've got to make the I got to give up some of my long-term opportunities to trade for my short-term opportunities that's that was the
00:25:27
argument I think originally for the voting class and you can read this in Google's Founders letter as well does that not apply any Founders at
00:25:35
Google don't even show up at the company why do they have to have super voting control they don't probably even know what's going on inside the company
00:25:46
I just want to hit on zuck's point because Zuck has said look you know this this VR AR metaverse stuff in the future
00:25:53
it's everything this is where I want to invest our resources so look what happened but look what happened they
00:25:59
they made a missive they said we're going in this direction investors really smart thoughtful supportive investors
00:26:05
including Brad were like uh hold on check your role and they capitulated now to your point did Super voting control come into play there no of course he could have said you know what guys pound
00:26:16
sand I'm gonna do what I want instead he's like I'm a smart guy these guys are smart guys so I'm going to make the
00:26:22
smart decision so in my opinion all of these things are red herrings these are in directions right so this idea of I'm
00:26:28
just going to take my toys out of the sandbox like a crying baby is what super voting control means to me as a
00:26:34
shareholder Brad okay I think the era of super voting control for Founders uh taking companies public is over
00:26:40
nope should it be you know I I think it's again when Facebook was doing really great and Snapchat was doing great nobody complained about super voting stock okay
00:26:53
so I I think that you know my preference would be that I partner with a company where I
00:27:00
know the founder whether irrespective of their votes right listens cares and has the mental
00:27:07
flexibility to make course Corrections right and and the reality what I'm trying to point to we have lived through
00:27:14
a decade of excess everybody knows all these companies could do exactly the same Revenue David this is the push back to your point unlike what the Google argument was exactly the same Revenue
00:27:27
with vastly less investment in terms of people Etc right a 20 riff that meta would literally only take them back to where their personnel expense
00:27:40
was in 2021 yeah nobody argued in 2021 and they said they were going to do this too Brad right and just hasn't happened yet this is this is part of the problem Jay Cal
00:27:52
everybody so why 10 percent why 10 you've doubled this the number of people working in the business over the
00:27:58
last few years right there's nothing magical about 10 the real question is what is the optimal number of employees
00:28:05
to produce the best outcome for our customers and our advertisers and what Bill Gurley has pounded on and we've all
00:28:12
talked a lot about there has been in a zero cost of capital world a unilateral March two more more of everything invest in everything hire
00:28:23
more people Silicon Valley would do itself a favor these big companies vacuumed up every single engineer in Silicon Valley they ought to return that pool to the startups that are actually
00:28:34
inventing the future they don't need this money in place I mean last night I read a report came across Bloomberg the
00:28:40
the elon's talking about 75 reduction at Twitter yeah so that would leave Twitter
00:28:46
just to give people some context here that wasn't that that originated in the Washington Post that would take them from around 7 500 workers to maybe two
00:28:53
thousand eighteen hundred and so he's starting from first principles how many people do I need
00:29:00
to build the next generation of Twitter that's the question start with a blank sheet of paper and ask that question
00:29:07
you'll come up with very different answers I think that you you can correlate these kinds of uh governance overreaches with zero interest rates
00:29:20
that dog doesn't hunt when rates are at four or five percent I don't care who you think you are but when you try to go
00:29:26
public in uh over the next four or five years if rates are sustained you know three four five percent that will be the
00:29:33
check on all of these people's overreach because you will have you know liquid Alternatives that on a risk-adjusted
00:29:41
basis seem better and when rates are zero and everybody was forced to own Tech we all gave up our standards we all stopped saying you know oh you know the
00:29:51
things that we used to think were important before like one person one vote you know uh a check between the
00:29:58
board and the CEO a check between the executives and the shareholders it all went out the window no discipline no hygiene right because when interest rates are at zero percent you have to
00:30:10
remember right how does how does the the structural basics of of the financial markets work it is meant to make money
00:30:19
on half of every single entity and person and thing in the world from a pension fund to a university to a
00:30:26
research lab to a government to an individual but in that ability to make money when we took interest rates to zero forty percent of what we all used to own
00:30:37
bonds yielded nothing and so we just completely whipsawed to the other side and said we need to own anything that grows so Tech got a disproportionate amount of
00:30:48
attention but in that we lost our standards and we are now going to go through the
00:30:54
hangover of dealing with it and so you know snap will be an example of where investors are going to abandon that
00:31:00
company because because it's just there's no point there's no governance there's no
00:31:06
ability to have a conversation it's in the too hard bucket so people will just leave it it'll be uh stranded and it'll
00:31:14
be a refugee in the public markets I think meta will be fine eventually because I think that they will revert to
00:31:20
the mean and the mean is Microsoft Google and apple and we already know what that Playbook looks like so I think
00:31:25
what Brad predicts is more likely than unlikely and I think in the future to David friedberg's point
00:31:32
I think it'll be very hard to justify these things you know Bankers will be able to push back because the buy side
00:31:38
ultimately guys like us who have to buy the stock when these things go public will say nope
00:31:43
you want to have these you want to have these dumb governance games no not for me I'll just go buy something else I'll
00:31:48
go buy more Tesla where it's one person one vote why you know so it's hard when the best
00:31:55
CEO in the world is like judge me keep me fire me on an equal basis and everybody else is like I'm smarter than this guy and so you know what let me make sure that whenever I feel like it I
00:32:08
can throw a temper tantrum and take my toys out of the sandbox and let's use it there's analogy here it doesn't work look at look at um Steve Jobs ousted
00:32:15
from his own company company company made a huge mistake asking him some people argue it was a learning experience for Steve to get better at
00:32:21
his job he comes back and he absolutely turns the company around so there's an example thus far you've proven that the
00:32:28
two most impactful and important CEOs of the last 50 years had the courage to basically say let my performance do the
00:32:35
talking not my protective Nanny control correct and Steve's performance was light in that first period he had some problems and uh and he learned and he still won but this is what the greats do
00:32:46
the greats know how to perform not you know use some no trade clause to make sure that you can just sit there and
00:32:53
underperform forever do we think Brad when we get to the sort of macro look at this let's assume we're in this 405 or
00:33:00
three four five percent interest rate for some extended period of time let's call it a decade what does the tech
00:33:07
industry look like because it does seem if Elon does with Twitter what seems to have been leaked here correctly uh according to all reports and there's a 20 rifat uh Facebook and
00:33:19
we start to see people take the medicine is that the ultimate setup for now hey these companies are being run to throw
00:33:25
off cash and we have some way out of this uh what people think is going to be a very hard
00:33:31
Landing well I mean you know first just let's talk about you know where rates are
00:33:37
three you know today you know we're at 4-3 on the on the 10 year I mean Technology's performed incredibly well
00:33:44
for a long period of time with rates in this in this range so the adjustment period is very difficult right and so when when you look at the
00:33:54
convexity in going from zero percent interest rates to four and a half like that has been a shock to the system it
00:34:01
has been destabilizing to multiples multiples were basically infinite last year and now multiples have come back to
00:34:08
reality and so I don't question in fact I actually think free Capital was a weapon of economic destruction right free Capital hurt good companies
00:34:20
from being great companies they hired too many people their margins were too low you know SoftBank funding all of
00:34:27
these Rideshare companies around the world to compete with Uber meant that Uber even though they're a market leader did not have Market leadership economics
00:34:34
and so the ringing out of the system of that excess that grift that stupidity that's going to be good for the fundamentals of these business but the transition from you know that low rate
00:34:47
environment to the high rate of iron is dislocating for investors it's dislocating for management at these
00:34:53
companies and it's going to be this this is not you know a a six-month phenomenon we're going to have two years of ringing
00:35:00
out right because there's no bailout here by the vet there's no v-shape recovery for these companies this is now
00:35:07
going to be I heard somebody say this week if the last 10 years was about beta the next 10 years is about Alpha not all companies are going to do well not all
00:35:17
companies are going to bounce back this is going to be about what companies have the courage
00:35:23
to build great products and to drive a great business model that allows them to compete and continue to invest at high rates in the next wave of innovation whether it's AI Etc and so
00:35:36
um you know to me the markets jcal have largely put in a box at this point inflation and rates right rates have come up 65 percent in the you know from
00:35:47
2.7 to 4 3 in the last 60 days and the Market's basically sideways it's down five to ten percent rates are up another 10 percent in the last two weeks and Google and apple are up that tells me
00:35:59
that the Market's gotten you know gotten its arms around rates and inflation what the market really is worried about now
00:36:06
are two things number one is earnings and number two is the long tail of risks on earnings there's kind of a
00:36:14
conventional wisdom emerging from a from from many folks that 3200 is the bottom or maybe 2700 at the bottom that we're going to go from 225 and in s
00:36:25
p earnings back to 200. that seems to me to be you know again a lot of people making that bet I don't see any evidence in Q3 earnings United Healthcare United Airlines Schlumberger
00:36:39
Tesla Etc their earnings are up on a year-over-year basis they've guided now to Q4 their earnings are going to be up on a year-over-year basis and the consensus expectations in q1 are the
00:36:51
earnings are going to be up on a year-over-year basis to go from 225 bound down to 200. we it can't just be a
00:36:58
slowing of the rate of growth of earnings you have to reverse course entirely so we have to see something
00:37:04
we're not seeing yet so on an earnings growth that's where the mark there's some tension in the market then finally
00:37:09
what I would say is there are a lot of big brains in the world who look at this level of dislocation rates going on the
00:37:15
two-year or on the front end of the curve from zero to four and a half and drucken Miller or Soros would say
00:37:21
negative reflexivity [ __ ] breaks when you have this much volatility in the world the world is not
00:37:28
equipped to deal with these exponential moves and so there's a lot of concern in the world whether it's about Ukraine
00:37:34
Taiwan UK bonds the Japanese Yen nobody knows what it will be but they're just saying demand a higher margin of safety because the propensity the likelihood that ship breaks when you have this much
00:37:48
dislocation is higher so I don't know Black Swan could come any minute and could cause another downdraft but last year we were all sitting here and said asymmetry to the downside
00:38:00
multiples at all-time high interest rates at all-time low we saw that starting to roll over we saw smart
00:38:06
people Elon bases Etc start to sell into it as I sit here today yes we're going to
00:38:13
have harder times ahead economically but it feels to me like a lot of it is priced in I don't think we have huge
00:38:19
asymmetry and skewed to the downside I think that's like fighting the last battle it's not to say in this
00:38:25
distribution of probabilities one of those events can't occur but from my vantage when stocks the average stock
00:38:31
down 20 percent stocks like meta down 50 to 60 percent a lot of stocks down 70 80
00:38:36
90. that doesn't seem like the time to call The Big Short that seems like a time to be like new
00:38:43
channel to positive should we go to tvpi DPI and talk about the privates I just want to say one thing about a favor question uh which kind of ties into some of what Brad said
00:38:56
but you you asked the question about does this mean that these companies are now going to kind of cut costs and start
00:39:02
spitting out cash I think there is certainly a market incentive to do that to keep share prices up and the
00:39:08
companies that can do that are certainly taking action with the head count reduction across some of the big guys
00:39:14
what I think is going to be interesting and what a lot of people are watching is
00:39:19
how many of the small and mid cap guys can actually do that and those that can't will it will become pretty evident
00:39:26
pretty fast and they're going to end up in the [ __ ] um you're talking to a Peloton or
00:39:32
something like that it doesn't matter across SAS across consumer across D to C across Hardware everyone is now saying
00:39:39
can you actually earn and at this point you should have enough scale that you should be able to earn and if you cannot
00:39:45
the market will punish you for it and that's certainly what seems to be the incentive and the pressure in the on the
00:39:51
buy side to the the executives across all these organizations today so I think that's a big trend of what's happening
00:39:57
right now is everyone's going through their portfolio spending time with management and asking can you earn can
00:40:03
you actually get this business to generate cash what is the path show it to me prove it to me in the quarterly
00:40:08
results and if you can't then you're not fitting in a bucket that I can own you the only irony there Friedberg is that
00:40:16
that comes as a surprise God forbid we should actually expect companies to prove unit economics and and to make
00:40:23
profits yeah but when you when your interest rate zero you divide by zero you get infinity so you know you were able to kind of explain everything away
00:40:29
into the future now you actually have an interest rate at five percent I Gotta Be
00:40:34
You Know making uh I'm not gonna pay a lot more than 20 times earnings and I want to see that that's really my
00:40:39
earnings you know I want to see that you can actually earn there is a person at Brad's investor date who Brad interviewed and I won't say his
00:40:47
name but he's a star of stars he's a bit of a goat and he had I'll just say the generalized
00:40:53
version and said the following which is so true it's like we've gone through an entire decade of under training an entire
00:41:04
generation of people in Silicon Valley you know we have under under trained and under-mentored the product managers the
00:41:12
engineers the senior executive management the CEOs many of these people unfortunately are not
00:41:19
um they don't have the skill set to execute at a high level at any point in the cycle except when rates were zero
00:41:25
like many business models and now that rates are not at zero these people are turning out to be extremely
00:41:31
underdeveloped and unable to run these businesses and when he said that it really struck a
00:41:37
chord because he's right and you know he was also saying it just got even more exacerbated in this era of
00:41:44
remote work because now there is even less opportunity to mentor and to coach and to talk one-on-one
00:41:50
and people think you know that this is a boon and it's not so you know we we're going to deal with also the aftermath of an entire generation of Highly underskilled companies because the
00:42:02
executive and Senior leadership and CEO ranks of many of these companies are not in a position to win if I may there was
00:42:09
an interesting moment this week when we talk about this discipline that has been lacking the last couple years a hundred
00:42:14
and one million dollar funding led by kotu uh Lightspeed Venture partners at a one billion dollar valuation for stability AI uh this is a for-profit
00:42:27
company built off the backs of the open source project stable diffusion they have no Revenue they have no product they've been around for you know a millisecond any thoughts on this type of funding
00:42:40
happening pre-product pre-revenue on an open source project I mean there's still there's always
00:42:48
going to be these these asymmetric bets that people think if it works it's worth 100x and they'll price it as they price
00:42:55
it I think I think what we were just talking about is a little different which is how do public markets
00:43:01
rationalize evaluation uh these businesses need to start earning for the public investors to be able to represent
00:43:07
to their investors that they're doing their job and making sure that they're holding management accountable to
00:43:12
demonstrating earnings potential but these early stage bets you can see valuations range depending on the
00:43:18
asymmetric outcome potential of the and you know what the upper and you know what the upper bound is the upper bound
00:43:23
is that when rates were zero and governments were printing money more than they could get their hands on
00:43:28
the top five tech companies represented a quarter of the S P 500 but there was a
00:43:34
pretty steep fall off and everybody else represented the next you know about 10 percent of the market cap so the point
00:43:40
is that we had bounded outcomes when rates were zero the average market cap of a successful company was around three or four billion dollars so
00:43:51
I'm not going to judge this company at all and those investors are very smart investors Lightspeed and CO2 what I will
00:43:57
say is at the end of the day there's a terminal buyer of these companies and we had a period of time that we can look
00:44:02
back on to understand that when the party is absolutely rip roaring the alcohol is free you know everything
00:44:09
everything is going well yeah we know what the upper bound is which is the average company if you were able to get
00:44:16
out would be worth about three to four billion and then there was a very very steep dispersion where then there was
00:44:22
four companies that were you know a quarter of the market cap and a few in between so if you do a deal at a billion
00:44:28
the overwhelming odds is that the terminal exit multiple is going to be somewhere between a 3X and a 4X x of
00:44:34
dilution and X of all of the other Capital that comes in and all of those features that may be attached so I think
00:44:41
everybody should be allowed to make different kinds of bets and you'll see over time
00:44:46
um which kind of deal can generate which kind of return this will be a really interesting data point the the common thinking was these
00:44:58
kind of deals were not going to happen in this kind of a market so when you saw this kind of deal happen or some other
00:45:04
that we've talked about privately what do you think is happening in terms of discipline
00:45:09
in the private markets I think I think I think maybe you should tee this up with Brad because I think that what I have to
00:45:15
say follows on okay with him but there's a there's a there's a macro view of the Venture industry that again it's like
00:45:21
everybody wants to never look at the past everybody wants to assume that this time is different
00:45:27
and there's some work that he did which is really instructive jcal to help answer this question I think so yeah
00:45:33
maybe you should ask him and then I'll jump in afterwards this is the TV tvpi uh study yeah so I mean Brad in relation
00:45:40
to my stable diffusion and and yeah DPI maybe you could well you know we we shared this with our investors at our investor today that that you guys are at this week this is a modern industry it's
00:45:50
only been around since the mid 90s right so the history Adventure you know is uh you got to look at when
00:45:59
you look at returns it's to say by the way what an incredible chart you guys put this is so good yeah let's describe the charts for people the truth hurts so
00:46:11
break down let's go ahead Jake Al do you want I mean just so if just for people who know we on Spotify and on YouTube
00:46:17
you can search for all in episode uh 101 and you could uh see this chart if you're watching the video if you're listening um the video describes 1997 to 2020
00:46:27
there's an orange line across it with the DPI average uh so why don't you define DPS you know what we did is we
00:46:33
took the top quartile of data from Cambridge Associates who invest in all across the entire Venture industry is
00:46:40
widely used as kind of industry data and we just asked a simple question of the top quartile top 25 of venture capital firms right what were in those vintage
00:46:52
years of the fund so funds raised in 97 98 99 fine what were the average cash on cash returns right tvpi is what your mark is that's where you're
00:47:05
carrying the marks total value to paid in capital so this could be just so we're clear because it's a little
00:47:11
confusing to people you have a company on your books that on paper is worth 10 billion you had put in at a billion and
00:47:17
on paper you've got this 10x return right correct right cash distributed to your investor so
00:47:24
that's cash on the barrel head so the reason if you look on this charge and just just to build just to be very clear
00:47:30
for everybody the whole goal is to be able to convert your tvpi so what your theoretical book is worth into DPI which is here's money back to my investors and
00:47:43
what you want on this chart is the blue line to catch up to the gray line so you
00:47:49
want the Gray Line to be as high as possible and eventually over time you want the blue line um to come up correct right so the blue
00:47:57
line here we're looking at 2010 just for one example you have a 4X for the tvpi you 4X everybody's money but the Blue Line only got up to it looks like 3.5 x maybe or something in that right but let
00:48:09
me just point out because that's an interesting Year Jason yeah we were coming out of the 2008-2009 period everybody was
00:48:17
despondent they said I'm sure they said what you just said about stable diffusion don't invest in anything
00:48:22
everybody's stupid but they were incredible companies that were invested out of that vintage right Snowflake and
00:48:28
[ __ ] out of our vintage shortly thereafter so maintaining this Duality that yes the world sucks but the the secular curve of innovation continues so that is a vintage where people actually
00:48:40
got things sold got them public distributed the cash back to investors the real question is this
00:48:47
on the vintages between 2011 2012 and now how how much of those gray lines how much of those marks look those are historical marks marks have never been
00:49:02
this high how much of those marks will actually return turn into cash on the barrelhead
00:49:07
and how much of those will actually just be mean reversion it'll all get marked down and the returns at the top quartile
00:49:14
will look much like the returns did in the period between 2000 and 2007. my hunch is that by the time the cash is actually distributed the returns are going to revert to that orange line mean
00:49:28
which means there are hundreds of billions of dollars in markdown sitting in LPS and GPS portfolios that are likely to come because nobody really
00:49:40
thinks that the deal is done in 15 16 17 18 are going to be that far above the mean return and so people also understand this these are vintage ears so these are funds formed in that year
00:49:52
and so this Trails a venture fund takes about 10 years they're formed without Concept in mind to become realized so if
00:49:59
you're looking at you know the year 2016 and 17 these are but five-year-old funds
00:50:04
at this point right correct yeah so they they do need time for these companies to grow how much of
00:50:11
this tremoth and Freiburg do you think is attributable to entry price because entry price during 2017-18 1920 is going to be extraordinarily High entry price
00:50:21
I.E the value of the company when investors invested in 28 2008 to 2011 when I had a lot of my hits was pretty low I invested in Uber Thumbtack and
00:50:35
um you invested in Uber com those three were 15 million dollars combined almost three evaluations did you you invested an Uber uh yeah maybe third or fourth semester I can't remember
00:50:57
let's talk about entry price because entry price does matter Brad uh or maybe Trump you want to take an entry price
00:51:02
for Freeburg well look there's this I think I think what that setup is that's probably a chart that most VC organizations don't even look at because if you looked at that chart
00:51:16
um you would have to take a real investing approach to things so if you were looking at that chart as
00:51:22
a GP there are two takeaways the first takeaway is oh my gosh what is the sum of the
00:51:31
invested dollars Above This Orange Line since 2012. 2011. right because all of that stuff could just basically get whacked if we
00:51:42
mean revert and the answer is about five or six hundred billion dollars of paid in capital
00:51:48
so then you would say oh my gosh well if there's five or six hundred billion dollars of impairment coming down the
00:51:55
pipe maybe more maybe it's going to be 750 million because the other thing to keep in mind is
00:52:00
over time the the orange line has a tendency to go down not up right because as you add
00:52:07
more and more of these things and some slight performers you have a general Decay function in every asset class as
00:52:12
it scales in size so this this Orange Line theoretically goes down which means more of those gray bars get destroyed
00:52:19
okay so there's let's just call it 600 billion or 700 billion the most important thing you would want
00:52:25
to do is now look inside your portfolio and try to answer the question uh oh um How likely am I
00:52:32
to see that impairment and Jason this is a proxy of answering your question the important question for a venture fund
00:52:38
which then has a downstream implication to the to the entrepreneur is now what do I do knowing that all of these gray
00:52:44
bars could get destroyed Nick go to the next chart while I calculated it for you guys so I'll give you the answer
00:52:51
here's a simple thing and you know this is publicly available data now why did I
00:52:56
do this because when Brad showed me that chart my immediate mind went to how do I
00:53:02
make sure I'm not susceptible to losing a ton of money well what happens in markets is that when things go down the things that are highly correlated go down the most
00:53:12
because they are the things that are the most highly trafficked which means that they're the things that have the most investors which means that in an up
00:53:19
Market they have the propensity to have the highest prices so we put we you know pulled all this
00:53:25
data from pitchbook and we just started I just took a smattering of firms here and recent index Greylock Benchmark
00:53:31
Sequoia GC Founders fund tiger Excel Kleiner coastla and us you could pick anybody because this data is publicly available and I started to calculate the overlap coefficient so how how
00:53:43
correlated are you with other people's portfolios trying to estimate at the upper bound
00:53:49
and at the lower bound what will happen so Jason this is a a proxy of answering your question what about entry price well if you have a very low correlation which touch would we have
00:54:02
you're less you're less exposed to bad entry price because it wouldn't have been a bidding
00:54:08
war to get into these companies exactly you picked your right spot you you went into areas that were earlier so you were
00:54:14
able to risk manage a little bit better but if you have a highly correlated portfolio now your marks become very
00:54:20
susceptible so my guess is if you take the 700 billion dollars and you calculate it for all the VCS and you
00:54:27
look at their correlations and their overlaps you can probably guesstimate where that 700 billion dollars of
00:54:33
impairment will come to and you can you can lay it out across any organization that you're interested in trying to find
00:54:40
a solution for by just stack ranking them and by looking at the at the at these correlations and this is by the
00:54:45
way to be clear nothing about the quality of the organization or the people but this is just simple portfolio mathematics and
00:54:52
how portfolios tend to play itself out in moments like this well and there's some interesting data in here as well a
00:54:58
freeberg you probably are aware of where some fund like let's say Founders fund and coleslaw have a close relationship because Keith were boy was at kosa and then he moved to Founders fund so you
00:55:08
see that nice dark purple there where they have a high correlation Investments interestingly index seems to just follow
00:55:14
Benchmark and Bill gurley's Investments and plow into them that seems like the highest correlation see here's the thing if you had to steal man the defense of
00:55:21
that strategy Jason I would say in an up Market Benchmark is a 500 million dollar fund where I get no allocation if I was
00:55:28
a smart LP and I did this work I'd be immediately knocking on index's door saying can I put money in you because in
00:55:34
the back of my mind it's basically getting leverage on benchmarks portfolio yeah you figured out how to follow them
00:55:40
yeah yeah but when the cycle reverts and you know you're not the only one that wants to copy benchmarks portfolio everybody does and if these correlations are too high and the overlaps are too high then you
00:55:53
start to get into a cycle where you put yourself in a position to actually suffer from the market beta much more
00:56:00
even when you can benefit from the market beta in an upcycle free break you want to analyze this chart and chamat's
00:56:07
uh thinking here his theory I don't know I mean I just think this has become a pretty competitive market and a lot of the values been competed away
00:56:20
well I mean I think for a lay person please yeah the long-term value creation of Technology of new
00:56:28
technology is going to remain high the Market's going to pay for that and so you know new market value creation new market cap is going to continue to
00:56:39
be built every year what's happening when venture has a low multiple is that number one the good companies end up the founders
00:56:51
end up owning more of the company and they end up you know having a higher percentage ownership when the company
00:56:57
ultimately gets sold or goes public because they were able to get VCS to compete against one another
00:57:03
and as a result pay a higher valuation and as a result buy less of the company and then number two is that because the VCS that couldn't get into that company still had a bunch of money to manage
00:57:14
they wouldn't put money into crappy companies so you know it's a lucrative business you guys everyone's in that business
00:57:21
because it's a lucrative business and that certainly it takes a decade to realize whether or not you're good at
00:57:28
it so you know you have this period of time as Brad shows that maybe a decade before the lp Market learns who is and
00:57:35
who isn't bad and meanwhile those folks who got competed out of the good deals you know they don't look very good and the folks that are left in the good deals own less of a company and their
00:57:45
returns get diminished and you know I think ultimately this Market is I'm probably going to end up being a
00:57:51
multi-decade cycle of capital in and capital out we're probably at Peak Capital being managed in Venture funds
00:57:56
right now and it'll likely decline for the next decade Brad Howard yeah Brad how would LPS look at chamat's analysis
00:58:04
there and how do they look at the Clubby nature and overlap you know writ large in our industry and then whatever other
00:58:10
insights you have yeah no I I mean I think uh very much disagree with with David that all the returns are getting
00:58:17
competed away the the huge difference between the Venture market and the private Equity Market or the public
00:58:23
market is it the Venture Market is unquestionably a power law Market okay 90 of the gross profits and the returns go to 10 of the deals and 10 of the
00:58:34
investors right so we just showed the average of the top quartile but if we show Benchmark one or two or Benchmark
00:58:41
six or seven it's ridiculous right the cash on cash returns over 20 years on those funds let's just go ahead and explain that to folks most Venture firms here are getting 2x
00:58:54
on average that's the average and is that average for the top quartile or all VC firms it's the top quartile of VC
00:59:01
firms their average is 2x yeah this is at the upper 20 to 25 percent would include the 75 bottom what would the trash Brad let me ask you a question What If instead of looking at the top
00:59:12
quartile you just looked at the top 10 Venture firms yeah because the number of venture firms has exploded over the last
00:59:19
decade and a half let's see and so I think the point that you're not getting is the top 10 changes every vintage and
00:59:26
and the problem is if you are aping the wrong portfolio in that vintage you'll get run over right and so the real goal
00:59:33
of this and I I also tend to disagree freebrook with what you say I don't think the returns are getting competed
00:59:39
away I actually think it's more Alpha than ever correct and you got to be a good picker and if you're a momentum
00:59:46
investor you just need to be aware on the way in that you are going to put your portfolio under tremendous pressure
00:59:53
in drawdowns I think the other thing the other thing it does this idea of the industrialization of
01:00:00
venture the softbanks the Tigers like like it's a myth you can't industrialize that you can indust you can build an
01:00:07
index fund to the public market because you can buy every company you might even be able to build an index like Fund in
01:00:13
private Equity because everybody can go bid for every company but Venture the founder chooses you
01:00:19
that early GP chooses you and so if you try to build an index fund that misses the best deals and I think there's adverse selection the bigger you get the less likely you're to convert the best
01:00:33
deals now you're really in trouble Brad do you think an index of first time VCS outperforms kind of that you know top quartile index
01:00:45
so you know there's some LPS that select in to just solo GP first time fund manager first time fund or you know maybe second time but solo GP but it's kind of like you know first into the
01:00:56
market before you really scale up that's where so many of the returns are found it's a lot of funds like MIT
01:01:02
they look for emerging managers because you tend to be younger hungrier you have
01:01:07
experience you've got a lot on the line but certainly if you look at the hundreds of startups in VC land over the
01:01:15
course of of the last several years uh 99 of them are probably garbage and will fail and and won't work so the All-Stars will be All-Stars and and the rest won't
01:01:26
somebody asked me I use this analog they said hundreds of new people have come into Venture and I said yeah it's like
01:01:32
it's kind of like a marathon you're right we had 500 Runners and now we have a thousand runners
01:01:38
but from my vantage it's the same five to ten Runners competing for the podium week in and week out in that top ten in that power law it doesn't change a lot
01:01:49
yes there have been people break in we know how hard it is to break in to Silicon Valley nobody invited altimeter to the dance nobody
01:01:59
invited Social Capital to the dance nobody invited Jason and Candace to the dance it was the opposite they locked my
01:02:06
doors because it's a highly lucrative business dominated by some incumbents that had huge Brands they didn't want to share the fruits of that we showed up we
01:02:19
worked hard we build incredible teams we had conviction right and we were we also
01:02:25
had good fortune right yes we were smart we were we placed some good bets but you
01:02:30
also have to get lucky in this business we were lucky to be born at this point in time lucky to start when we did in
01:02:36
Silicon Valley I'm going to finish just with this one point this whole experiment of venture capital is less
01:02:41
than 30 years old the Modern Age of venture capital is 30 less than 30 years old we're going through this period
01:02:47
where everybody wants to [ __ ] all over the industry you know tvpi is going to come down all this other stuff I think
01:02:53
that Venture my dad when he went to start a business had to borrow money mortgage the house think about the
01:02:58
friction for somebody with a young family if the cost of failure was losing your
01:03:04
house putting your family In Harm's Way versus some young startup in Silicon Valley today where the consequence of failure particularly if you if you conduct yourself with Integrity is that
01:03:15
you learn a lot right there's no losing a house there's no cataclysmic outcome for your family
01:03:23
so to me when you look at the economic unlock that we have in this country by reducing friction to invention by reducing friction to experimentation I
01:03:34
am incredibly bullish on the future of venture I think Founders are the engine that drives the world forward right that's where we get electric cars that's where we get rockets that land
01:03:45
themselves that's where we get mRNA vaccines and so there will be cyclicality there will be
01:03:53
industrialization there will be big funds in small funds but the reality is that this ecosystem is a massive
01:04:00
competitive Advantage for this country I think when we look forward at the information age over the next 30 Years
01:04:05
the power of this ecosystem is more strategic advantage to this country even than natural resources I'll say I'll say something orthogonal to this which is in order for that to happen
01:04:17
just to build on the point Brad of of your guests that you think we have an entire generation of uh financially
01:04:26
enumerate General Partners at Venture firms and Venture needs to be a pillar of growth in society and I think people need to have more
01:04:36
financial tools and underpinnings to do their job why because over these next 10 years when maybe you have 500 to three
01:04:43
quarters of a trillion dollars of value destruction and it's because you didn't think about portfolio construction properly that
01:04:51
entrepreneur that needs your money you will have to say no to them or renege on a deal or let them down
01:04:57
and the reason is that you didn't think about that on the way in and so these are practical skills that every other part of the financial asset
01:05:08
infrastructure has to learn we are taught the hard way you know we are taught in the public markets how to
01:05:14
think about dispersion correlation Alpha Beta you're taught in private Equity how to do it you're taught in every other
01:05:21
asset class and we romanticize venture to think that none of that matters but in a moment like this you will see how much or how much it doesn't matter and if you're going to live up to the to the
01:05:33
actual commitment you make to an entrepreneur you better get financially smarter is what I would say all right let's uh move on do you want
01:05:41
to go to uh stock picking or Lyft versus Newsom on this prop 30. I want to hear that Friedberg dive tribal stockpicking
01:05:47
you do okay I want to hear it on here well anyway there's a bunch of people talking about uh index funds versus
01:05:55
um buying individual shares and being a stock picker Elon and Kathy Wood uh got into this on Twitter and we all know the
01:06:03
arguments for passive versus active and there's large active funds out there uh that are just programmatically buying and Elon and many think that active
01:06:15
would be better for society or a bit more active free bird what's your take a business is a over time
01:06:22
it's supposed to be a machine that takes money in and puts money out and then there's money
01:06:29
left in the machine it's like a box money comes in money goes out and over time the objective the money coming in
01:06:34
which is sales or Revenue exceeds the money going out and the Box Grows Right the assets grow
01:06:40
and the best way to look at that is in the financial statements of that business you know the income statement
01:06:46
the balance sheet the cash flow statement but we and then there's this narrative that can
01:06:53
be layered on top of those metrics that measurement of how well that business is performing over time and that narrative
01:07:00
is what drives a lot of investment decisions uh today right I see whether it's an analyst writing an analyst
01:07:06
report or a portfolio manager or an individual picking a stock everyone's got a reason why they're buying the
01:07:12
stock and they say here's my thesis and what happens is everyone looks at that box looks at that business looks at that thesis from a different angle and there's always something you're
01:07:23
missing so there you know there's some element that is driven by imperfect information and in some cases it's just heavy bias you know you look at a stock you're like hey I
01:07:35
really like Disney plus I really like the subscriber growth but the question fundamentally is over time what is the
01:07:43
revenue generation and the profit generation potential of that one thing you're looking at and what are the
01:07:48
hundred other things that are going to contribute to that business that box taking in more money or spending more
01:07:54
money is that box going to run into a regulatory problem is it going to run into a customer problem is it going to
01:08:00
run into a Content problem is it going to run into competition the number of issues and opportunities
01:08:06
that any one of these businesses can and will face is infinite and every participant in a market is looking at
01:08:12
some different set of those opportunities or threats and every participant in that market is making a
01:08:17
difference value judgment and so very often people will buy a stock because they see their sliver they
01:08:24
convince themselves that based on the sliver of the perspective that they have that this is something I want to own
01:08:29
they don't do the work on what's the income statement balance sheet cash flow gonna tell me over time about the
01:08:36
quality of that business and they don't do the work on what the valuation of the business is relative to comparables
01:08:42
relative to Future earning potential and I just wanted to have this diatribe because I see so many individuals doing
01:08:50
stock picking and over time because of this Myriad of things that could go wrong and will go wrong or may go right
01:08:57
or won't go right or the regulatory thing or the market thing or whatever interest rate thing hits that stock and
01:09:03
the stock price goes down eventually everyone gets hit on the head and everyone reverts to mean or below mean
01:09:09
meaning the average of the index over time or underperforms that index over time
01:09:14
and so I mean for me I spent two years I I know we all went through some sort of investment banking training I spent two
01:09:21
years out of college without a I had no Finance econ or business background I worked in Investment Banking learned how
01:09:29
to read an income statement balance sheet cash flow learn to understand how business performance ultimately
01:09:34
translates into Financial outcomes and spent a lot of time on valuation and figuring out just because you like the
01:09:40
story of a stock you like the story that the CEO is telling you it doesn't necessarily mean that you're paying a fair price so if you if everything they
01:09:47
do goes right this price can still drop and I think that this is a really important set of lessons for people that
01:09:54
are individuals that are doing stock picking which is to number one message and this diatribe is specifically
01:10:00
targeted towards day Traders retail correct I don't know if it's just them I think it's just generally like make sure
01:10:06
you understand how to read and ink buying a stock you know what the total value of the company is based on the price you're paying and how do you
01:10:19
justify that that total value makes sense relative to your model of the future outcomes for that business
01:10:24
and then number three recognize and be cognizant of the fact that whatever one thing you're seeing that you think
01:10:30
you've got some Edge or some advantage on because no one else is seeing it there's 99 other things that you're not seeing and this is where everyone learns
01:10:37
this lesson over time and everyone gets bonked on the head at some point and making these decisions and it's why every stock picker or nearly every we
01:10:44
can talk about the greats at some point here and where Alpha can be generated and so on but generally most stock
01:10:51
Pickers over time underperform the index um and it's just particularly with the retail movement of the last couple of years I I see a lot of thesis here's my reason for buying this talk that
01:11:03
excludes understanding the financials understanding the valuation metrics and also excludes the whole Litany of things
01:11:10
and all the diligence that goes into thinking about all the other angles you might be missing a bottle
01:11:16
it turns out that it's hard to be good at anything insert the blank takes tens of thousands of years of practice in investing I think what I have learned
01:11:29
is that it's very easy to get caught up in the Mania I have also learned in the last decade that you know we really benefited from zero interest rates it was a tie that
01:11:43
lifted all boats and I have learned how to think about correlation and the difference between Alpha and beta and how to construct portfolios that I think can be all weather portfolios to
01:11:59
friedberg's point those are nuanced long tail skills that you'll only take up if you're really
01:12:04
passionate about the craft it's not dissimilar to a person I'm just going to use golf as an example who learns how to
01:12:11
hit a fade versus a draw and who learns how to really manipulate you know their wedges in very specific ways and these
01:12:18
are all long tail skills that come in when you decide you want to master something
01:12:23
and it's just important to note that that Mastery is required to be really good because otherwise there'll be times where you'll go out on the golf course and you'll crush it but then you know there'll be other
01:12:35
times and most other times where you can go and get run over because it's hard so that's my only comment is that this is
01:12:40
like everything else it's not nearly as easy as it looks like Brad you pick stocks for a living should retell
01:12:47
how involved should retail investors basically they just buy an index I don't think it's fair to say retail what I
01:12:52
think my point was really about no his point is everybody okay sure everybody my point is saying a thesis and
01:12:59
excluding all these other factors that are critical in making a decision about what you're buying and whether you're paying the right price
01:13:05
means that you have to make sure that you're expanding your point of view on whether or not a stock is worth buying
01:13:11
at the market price today and I think having that broader perspective is what I see missing in 99
01:13:17
of the chatter on Twitter 99 of you know folks talking about what thing to buy maybe they're buying it and I think it's
01:13:23
critically important you're saying that most investing that you see is very narrative driven
01:13:30
and that narrative can sometimes be so powerful that it overpowers all the other elements that one should be doing to get a full picture of why you should be buying something is that I think
01:13:41
that's a fair summary tomorrow yeah yeah and I think it's um you know it's and it's it's it's just
01:13:47
about how so much of what goes on on CNBC on uh a lot of Reddit boards not all of them there's very sophisticated folks there doing very sophisticated financial
01:13:57
analysis and looking at all the angles of a stock setting the valuation but so much of these conversations exclude what
01:14:05
you're paying and what you're getting and exclude the broader context of all the things that could and may not happen
01:14:11
with a particular business and as a result at some point one of those things blocks you on the head you lose 50 and
01:14:17
you're like oh my gosh and sometimes and sometimes if you try to inject that logic into those channels you'll get
01:14:24
brigadooned bring it it'll be absolutely brigadooned Brad what do you what do you
01:14:29
think uh in terms of people's access to markets I guess would be another way to look at this and people's
01:14:34
propensity to just you know gamble let's call it or maybe not make thoughtful decisions I kind of think if our friend
01:14:41
Bill Gurley was here he'd be like this is a five-minute conversation about the statement of the [ __ ] obvious
01:14:49
um you know this is stock picking's hard really is that the theme of this section
01:14:55
yeah stock cooking's hard very little Alpha has ever been generated in a sustainable way even by the greatest people of all time I think you know maybe something that is
01:15:06
a little bit useful to add two things not all good companies are good Investments
01:15:12
price of Entry matters okay so I hear a lot of people saying well I'm gonna buy that because it's a
01:15:18
good company that I don't even know what that means exactly right good good relative to the price of Entry
01:15:25
but the second thing is the single greatest power we have as investors the Green Greatest single source of alpha right other than stock selection so
01:15:37
choosing the right company time Arbitrage okay so do you have the ability to own
01:15:44
something that is a growing asset over a long period of time so that if you got number one wrong you bought it at the
01:15:50
wrong time [ __ ] happened in the world they miss a quarter Etc that you're not forced to lock in those losses because
01:15:56
you over allocated to that so this idea around portfolio management is a principle component of overall stock
01:16:02
picking is it's just absolutely critical so I think it you know I don't really I
01:16:10
love the fact what I put myself through college I put myself through law school through business school day trading
01:16:17
stocks out of the back of the classroom I'm grateful I live in a country that let me feel like I had some Alpha and
01:16:24
that I could do that and I could go read the newspaper and sort it out and I wasn't building sophisticated Financial models
01:16:30
so like you know I think there are ways that folks can do this there are a lot more ways to lose money than there are to make money in a sustainable and durable way right and so
01:16:42
as investor what we try to do you know we've got 90 percent of our portfolio and our top five or ten companies okay I'm not an index and the deal I
01:16:54
have with rlps is I'm very transparent with them they know that we're going to own companies in size and it's that portfolio concentration and our time
01:17:04
Arbitrage holding companies for three years or longer that is a strategy they choose to believe in and sign up to but I know a lot of greats who would
01:17:15
never subscribe to that strategy so know your strategy execute it allocate a reasonable amount
01:17:22
of capital so when all of these unknowns that day Friedberg talks about come along you can react accordingly and you
01:17:30
know the final thing is if it's not fun for you right like if you're actually not
01:17:35
passionate and curious about like studying this stuff and learning about it not everybody is then don't do it
01:17:41
right then don't do it then just put your money in it you're not going to be good at it the analytical depth and rigor that the
01:17:49
greats employ to be successful at picking stocks at picking businesses and investing in them
01:17:56
and selling them at the right time over time it does not make for good Tick Tock
01:18:01
content it does not make for Good short form content and I think that's why we've seen this dumbing down and this
01:18:08
kind of short form thesis-driven Narrative Approach to content creation around markets and stocks that ends up
01:18:15
causing a lot of people a lot of harm uh you know you watch the Jim cramers of the world I don't mean to disparage any
01:18:21
one individual but that sort of content that's like this is a great company we should buy it like let's go and uh the
01:18:28
the depth and rigor takes a lot of time and a lot of effort to really do right and then you get hit in the head you
01:18:35
know when we um and that's that's what I've observed lately and in a really kind of flurry way particularly across
01:18:41
social media and so on that's uh that's why I just wanted to talk about this topic today just to build on top of what you're saying Warren Buffett made this
01:18:47
very famous bet in 2000 it was him versus a bunch of hedge fund managers and they were able to pick a basket of
01:18:53
hedge funds and he said I'm not even going to pick myself I'm going to pick the s p 500. and the low-cost ETF the
01:18:59
Vanguard ETF and he said we'll check in like 20 years later anyways you know the punchline of the story Buffett won he
01:19:05
won like a million bucks that he donated to charity and these hedge fund folks lost and so to build on your point Jason time
01:19:12
and time again the smartest investors in the world I.E guys like him have shown us
01:19:18
that the most predictable way to make money if that is your goal is to own the S P 500 which is you know a dynamic
01:19:24
index of the 500 best companies in the world so there are these people doing all the hard work for you and they have
01:19:30
very strict criteria of who's in S P 500 company or not now yes if you cherry pick other companies that are not or you
01:19:36
concentrate in some will you generate better returns absolutely but systematically over time that thing has
01:19:42
lurched forward at eight percent a year you know nine percent a year if you invest dividends you can approach 10 a
01:19:48
year um and so if if you really want to just grow your wealth that's a very simple
01:19:54
Steady Eddy way to do it and to take a small amount and then go and you know experiment with it to learn make sense
01:20:01
but I think it's important to make sure you're going Their Eyes Wide Open to try to actually learn Buffett of course says
01:20:06
the index works really well but then he's got 50 percent of his public portfolio in apple over the last few years so he clearly believes in Alpha as
01:20:14
well but you know back to friedberg's point since we brought up Buffett you know somebody asked Monger why can't why
01:20:20
can't people just copy what Buffett does and he said because nobody likes to get
01:20:25
rich slow nobody likes to get rich though if you wanna what did a zero percent rate
01:20:32
environment remind us all over the course the last few years everybody had a grift everybody had a get rich quick
01:20:39
scheme I don't care whether it was crypto flipping or whether it was house flipping or whatever it was everybody thought you know this was easy and frankly looked at guys like us
01:20:50
oftentimes and said you're the dumb ones you're playing the game that's really hard why don't you just you know uh flip
01:20:57
some crypto and I think we're back to a world that if you really want to you know by the way yourself how dumb did you feel I felt so stupid all these
01:21:07
tokens minting minting billionaire billionaire billionaire billionaire billionaire billionaire and I just I
01:21:13
just sat on the sideline to your place it just made you it made me feel so stupid I felt super nice just like I I
01:21:20
what who's the customer and how much do you charge them and when you can't get that basic answer of who the customer is
01:21:25
and how much it costs for them to buy the product or service the Brad's point I think the punch line is and then you
01:21:31
know at the 11th hour it's like there's a tendency to just capitulate and say okay forget it I'm in and that's when
01:21:37
all the money gets torched real quick there's a proposition here in California where we vote on specific uh ballot
01:21:42
measures not every state has this but we have prop 30 coming out this is a 1.75 tax on income earned incomes earned over
01:21:49
2 million for the next 20 years in California which by the way had 100 billion dollar Surplus that would go
01:21:56
towards clean energy this was proposed originally by environmental groups but uh Newsome has come out to battle
01:22:03
against this which would seem counter-intuitive because he's so Pro environment what this would do is spend
01:22:10
about 80 percent of this hundred billion in new tax revenue over the next 20 years 80 would go towards charging
01:22:16
stations for EVS and motivating customers to buy EVS 20 would go toward to combat the uh crazy amount of wildfires we're having here he uh gavinusum that is called this um a
01:22:30
cynical scheme devised by a single Corporation Lyft to funnel state income tax revenue to their company Lyft has
01:22:37
provided almost all of the 40 almost 48 million in funding for this prop 30 and the reason is because California is going to require 90 of ride sharing
01:22:48
miles to be traveled by zero emission vehicles in 2030. you know on top of that that California is going to not let
01:22:54
you sell anything other than EVS in 2035 if this continues now you've got a bunch of people on the other side of this
01:23:00
doing anti-prop 30 including the California Teachers Association because they want the money
01:23:06
read Hastings over at Netflix Moritz over at Sequoia Sam Altman over at open AI what do you think of this um Freeburg I'm curious sorry what side are they on
01:23:18
Jacob no they're they're saying don't do this because they are trying to control taxes and they're on Newsome side Newsome side hey this is a grift by Lyft because Lyft
01:23:31
is concerned that they're gonna have to you know bear the brunt of 90 of miles so I guess
01:23:38
the I don't know if it's original sin but the the one of the levers here is Lyft is got the majority of their rides are in California Uber has stayed out of this because they don't have as much
01:23:50
exposure because the number of rides in California is a smaller percentage of their overall Revenue Brad you have some
01:23:56
thoughts too here I think so Freeburg or Brad I'm just looking at the board of directors and Lyft and thinking to
01:24:01
myself good God what are these people thinking spending 40 to 50 million dollars on
01:24:07
this it just seems that they've totally lost the script the company has way bigger problems way bigger problems to
01:24:15
focus on right than you know this measure have a little faith in the system that if we don't get to a place where this is reasonably practical over the next 10 years then I'm sure we will
01:24:28
evolve right uh the legislation around this you know kudos to DAR and the team at Uber for not Running Scared on this right for not trying to push this through these corporate governance
01:24:40
initiatives guised as referendums in this state I mean this is just bad politics bad policy I mean we got
01:24:46
Valerie Jarrett on the board of this company you've got political sophistication on the board of this company I want to be you know I wish I
01:24:52
was a fly on the wall I want to know the conversation that went down and who raised their hand and said this is the highest and best use of 40 million
01:24:59
dollars of our money crazy yeah right makes no sense Freiburg you have thoughts on if I mean you've talked
01:25:05
before about how you think the free market should solve this what is the what is the governance structure of lift guys
01:25:10
I knew that was coming I knew it was coming did they have security shares here anybody look I don't know the answer to that so I think that the tax rate in California
01:25:21
is high enough now that we all have friends friends in our poker group who have left for the State of Texas or the
01:25:26
State of Florida where there are lower tax rates and where they feel like they're getting more value uh for their
01:25:32
tax dollars there's certainly a calculus going on with Newsom I believe in you know the
01:25:38
impact that having higher tax rates would have on what is clearly not just a theoretical but an actual evidenced
01:25:45
um you know Exodus from the state of wealthy and high-income earners this could be like you know at some point
01:25:51
there's a Tipping Point that looks a lot like France where you raise the rates high enough enough wealthy people leave and the net tax dollars actually go down
01:25:58
like what happened in France when they introduced their wealth tax then they reversed it and everyone came back
01:26:05
I will say I don't more important long-term point I don't see a world where we don't have over 60 tax rates on the wealthiest people in this country at a federal level if you look at um if you
01:26:17
assume a five percent long range call it 15 20 year uh Horizon for uh for interest rates even four percent on 30 trillion dollars of outstanding
01:26:29
debt and you assume that the voter base will never vote to reduce Social Security or
01:26:35
Medicare uh entitlement programs and obviously the defense budget won't get cut we are not going to see a situation
01:26:42
in this country on a federal basis where we can actually meet all of our fiscal obligations without incremental tax
01:26:49
revenue and I think it is much more likely that you know look whatever happens with the state initiative happens but I think it's very likely
01:26:55
that over time the only way for the United States to uh to bridge its fiscal Gap is going to be to raise income to increase the tax rates I don't see another solution because I don't think
01:27:05
that the federal government or in our kind of democratically elected Congress we're going to see a system that's going
01:27:11
to say hey let's go for austerity measures let's reduce entitlement programs both sides will say that it's
01:27:17
just not going to happen so tax rates higher tax rates I think are coming well you know maybe California will skip over
01:27:23
this particular generation but I don't see how the United States continues to thrive over the next 15 to 20 years
01:27:30
without tax iterate that will today seem exorbitant well in the last 20 years we blew through a debt to GDP that was I
01:27:37
think 57 percent and it basically doubled and so David to your point when we wanted to feel prosperous what we did was we financed it we went out and we you know put out a ton of debt in order
01:27:50
to make sure that our entitlement spending or our defense spending or whatever the things were that we need it
01:27:56
as a population to feel like we were growing and moving forward as a society we had so that is the Practical nature
01:28:02
of what happens and look a lot of people think that there is some upper bound to debt to GDP and I'm
01:28:10
actually of the opposite view which is I think that you know the quote unquote invisible hand justifies us moving debt
01:28:16
to GDP to higher and higher rates so the first time the United States went past 100 percent
01:28:22
we thought it was the end of the world it turned out it wasn't we'll eventually go past 200 somebody will clamor and you
01:28:29
know be anxiety riddled but they'll take some ssris they'll be okay we'll keep moving forward then we'll get to 300
01:28:35
percent we'll keep moving forward so we are in a debt spiral that is a feature not a bug of how Democratic societies work as a companion to that
01:28:46
I do agree with you that taxation kind of is a pendulum it it Ebbs and flows and you know we're in the part where
01:28:52
it's going to go higher before it goes lower but I want to tell you a story which is
01:28:57
that in the beginning of this summer or sorry this fall I was in the Middle East and then I was
01:29:03
in Asia and they have very different taxation schemes right and many of them have
01:29:08
zero corporate gains tax and you know sometimes zero income tax but then the opportunities for them to be able to invest and drive returns is also commensurately lower meaning
01:29:20
there's not as much Alpha in most of the opportunities that they see whereas if you go to California you have to pay 60
01:29:26
tax but then you know you could be an angel investor in Uber you know and all of a sudden take 25 000 and turn it into
01:29:33
a hundred million which is UN ungodly it's incredible so I think that in my opinion actually
01:29:41
like there's actually this beautiful symmetry where even if taxes are high your earnings potential is
01:29:46
commensurately higher such that the net that you're left with is the same as if you were in another place where taxes may be zero but you're just not going to get exposed to the same ways to make money
01:29:57
and I think obviously there's Corner cases where that's not true but I don't think sweating taxes is a really
01:30:04
important waste it's important way to spend somebody's time I just think it doesn't matter Brad funnel word I would
01:30:11
just say the beautiful thing about Federalism is we get to a B test in real time uh different points of view and so we're seeing it the biggest a B test
01:30:22
maybe in the history of federalism between the state of California the state of Texas and the State of Florida
01:30:28
and it's not just tax rates right when when Elon leaves to go to Texas we have the head of the California General Assembly right changing her Twitter profile to say Good Riddance and
01:30:40
flipping the flipping the bird to Elon right there is a hostility toward business that has emerged in California that I think is commensurate and related to the tax rate but also separate at the
01:30:54
same time we have the mayor of Miami texting us asking us to come down for a visit we
01:30:59
have friends uh in Texas who are literally politicians who are marketing their state to people in in California
01:31:05
and we're going to be able to political scientists will look back in five or ten years and they'll be able to answer
01:31:10
those questions for you but I suspect that that makes us a much stronger place for experimentation than countries like
01:31:17
France where it's all or none and just to give people an idea to Jamal support about point about debt
01:31:24
to GDP here's the chart early part of our lifetimes 50 percent 1990s 60 70 percent uh after the Great Recession the pandemic 120 Japan's at
01:31:38
200 I think so there's obviously it doesn't it doesn't mean anything I know that your payments at some point yeah I
01:31:45
really don't think so because I think what will happen is you'll just move the yield you know the yield to maturity will move out and you know we'll issue
01:31:52
again you know this is the funny thing we talked about this last night at poker like you know Trump's ideas some of them
01:31:58
were actually very brilliant they were just packaged through this lens of being a total goofball so you could take it
01:32:04
seriously but 100 Year bonds when rates were zero now looks like oh my God what a brilliant move well I mean if you could take a 50-year worldview about climate about nuclear energy about semis
01:32:16
we didn't get to semiconductors again this week we got so much good stuff but you know we do need to take very long
01:32:21
multi-deca looks at investment and why not make a 25 or 50 year bond for semiconductors can I actually just do a small PSA sure quickly public service announcement from
01:32:33
Tremont the more you know go I went to Blue Bottle Coffee today and I asked for a latte and uh they gave me a latte with
01:32:40
oat milk that's their default which is disgusting and I find out I find out that is now their default and brutal and I said there's a lot of normal people
01:32:50
that don't want to ingest that chemical spew into their body and so this is just a shout out like
01:32:57
just a comment to Blue Bottle like can you please realize that a lot of us are normal we want to come to your store and
01:33:03
then you know not have to ask for the long tail alternative can you just serve the things first you're signaling
01:33:09
coffee shop yeah most of the people still drink milk okay um I'm not trying to Brigadoon you blue bottle but I'm not going to go to you anymore as a customer because I find
01:33:21
this stuff really dumb like can you just have milk so that I can ask for the oat milk if I want to versus giving me
01:33:27
chemical stuff that I don't want I don't want that yeah that's and and complaining about
01:33:33
oat milk is that what's going on no it's this is this is where we are moment it's just like I just want milk I want a
01:33:40
latte I mean I want to go and support you guys I want to maybe you know maybe the cow doesn't want to make that milk for you after its baby was ripped away
01:33:47
from it oh boy here we go you know here we go it's day we and we we survived 90 minutes and here it comes is the point
01:33:54
you know did the cow agree to be in service to you to make your milk you think I need to have a verbal contract
01:33:59
with cows I mean well yeah I mean are we going to do the olive fed beef next week or not
01:34:05
the best translator of the cow human protocol who who is it you is it one of your friends like what I don't know actually I am working on a neural link I'm not sure I'm not sure that the default assumption that the cow should
01:34:18
be there to do whatever you want it to do is a fair assumption I think that'll change over time but it'll take some time
01:34:24
I I think that that's completely fair and reasonable but what I'm saying is right now while there's an entire you
01:34:30
can't believe you said that economy is made my will well there's an entire entire economy of people that shouldn't
01:34:36
get rolled over because you want to impute the emotions of cows I'm allowing you your freedom to want to impute those
01:34:42
emotions of cows while I would like to support the dairy industry and buy milk so can I please do that no I want to
01:34:48
impute the freedom and rights of the cows but that's going to take some time but sure go ahead have your milk for now and you're allowed but I right now will
01:34:55
take the side of the Dairy Farmer I just want milk did anybody get your chicarin
01:35:01
outrage your trim off Karen outrage shut your Karen on tape is this trending on Tick Tock yet when you admonished the
01:35:11
barista's fault I just think it's I didn't make a scene or anything I just got it I taste it because I just said
01:35:18
can I please have a latte assuming that it would come with milk like most normal places yes and now I have to actually
01:35:24
ask for milk because they think that this chemical composite stuff that's called oatmeal have you looked at the
01:35:30
ingredients we had this conversation yes we didn't even get to MailChimp CEO Ben
01:35:36
Chestnut who is you know like one of the kind great CEOs of Our Generation getting
01:35:41
yeah his memo is his last name really Chestnut I believe it is yeah his sister is a great guy I've met him so many times incredible human and he's been ousted should we do outros because you
01:35:53
didn't do intro did you happen all right so here's the outro yeah four uh for the Sultan of science the queen of quinoa
01:36:00
himself climbing the Stray Cat leaderboard as we speak David Friedberg follow him on his Twitter handle where you can get all kinds of hot takes from science
01:36:11
to Ukraine at Friedberg is talking about I never tweet I know that's the joke okay so with with us again the anchor he'll be doing a Twitch streaming where
01:36:22
he translates the emotions I'm actually doing my cooking show which has a base of oat
01:36:29
milk it's my oat milk top 10 beverages tonight on Twitch just follow stray Friedberg get it I don't want to get brigadooned by the oat milk Lovers by the way they're coming they have milk
01:36:39
stands are coming for you man you listen I don't want that chemical stuff in my body but I'm not going to stop you from
01:36:45
doing it I'll do a diatribe on chemicals in oat milk next week what should we drink if you did have a choice Freeburg
01:36:51
if you didn't want to drink the chemicals in a Oatley what would you drink what would you advise what do you drink I don't know I'm gonna drink soy
01:36:57
milk oat milk whatever okay all right but you okay but you're okay and uh um bringing tasted milk I drink the beautiful glass jar no I'm
01:37:09
asking free burgers three dollar returns for each glass bottle I returned them and get them from goodies have you tried have you tried look I'll tell you what
01:37:19
is going to happen in the next he's never had milk in the next 10 to 15 years most of the milk you buy at the store
01:37:26
will be identical to cow's milk same protein composition it will be built in a slurry I mean you can make fun of it but you do
01:37:37
work in the tech industry but yeah I mean Precision fermentation is the future of making animal proteins
01:37:47
I'm telling you there is an economic model that will work that's great you know but I'm saying by the way between
01:37:54
now and then can I just do things number one is there's a taste in a flavor profile I've grown up with that I would
01:37:59
like and I don't think I'm a bad person so I'd just like to have that okay not be made to feel guilty about it okay and
01:38:06
and and number two I don't want to put chemicals in my body okay so if I can find a natural thing that I like can I
01:38:12
please just drink that can I just please blue bottle have that in my and coffee without having to explicitly ask for it
01:38:18
yes you you will get that and number two they're short it's still owned by Nestle and they're the largest Gary but has
01:38:25
still has a short on Oatley so let's just keep this going for just two more weeks okay let me ask you an ethical
01:38:30
moral questions no I'm joking he does not have a short I don't even know if oatley's public I'd rather you ask me an ethical moral question than a political
01:38:36
one so I'm going to yeah I mean we got a break from Ukraine this week would you have a if the synthetic version of milk
01:38:44
or steak was made like and is a protein that is exactly the same to a cow would you have a problem morally with eating and or drinking it no so the objective
01:38:56
of what's called Precision fermentation or some people call it biomanufacturing you take the DNA from the cow or from
01:39:03
the chicken you put it in a yeast cell or a bacterial cell and you put in a fermenter tank you put sugar water in
01:39:09
the tank and the yeast Cellar bacterial cell eats that sugar water and it spits out that protein
01:39:15
you've programmed that organism to make that protein and instead of growing a whole cow or growing a whole freaking
01:39:21
chicken you're growing the protein no because no animal died in the making of the process you know you're not taking can I quote Dave Chappelle here go ahead yuck
01:39:32
all right it's identical to the protein you're eating otherwise tastes the same it's the exact same compound oh like there's nothing about it that's different and thanks to the dictator thanks to the southern science and for
01:39:44
the fifth bestie coming in and and doing a great job today on behalf of our friend this [ __ ] David sacks who is busy in a secret clandestine peace uh
01:39:56
making junket to Ukraine I am the world's greatest moderator Jason Kyle Kennis we'll see you next time on all in love you boys we'll let your winners
01:40:09
[Music] and they've just gone crazy [Music] besties [Music] release [Music] [Music]